By L. Randall Wray

On Wednesday April 28 several New Economic Perspective bloggers participated in a 1960s style “teach-in” in Washington DC to explode some of the myths about Federal Government deficits. Our event was timed to counter the Pete Peterson-funded extravaganza that promoted all of the fallacies used to stoke hysteria and fear of deficits. You can find more information about our event, as well as our power point presentations (here).

Right before the event, we also issued a joint piece examining the nine worst myths, posted at both New Deal 2.0 (here) and at the Huffington Post (here). The flurry and fury of comments to our piece was amazing, nay, shocking. I think these comments demonstrate just how successful the billions of dollars spent in Peterson’s campaign have been at promulgating dangerous falsehoods over the past two decades. Indeed, the level of commentary is notable both for the vitriol and for its sheer ignorance. One wonders whether civil and informed discussion on the topic of money is even possible.

I was reminded of a conversation I once had with the late and great Robert Heilbroner about my book, “Understanding Modern Money”. He warned me that the book was going to scare the living daylights out of readers (actually he used more colorful language—but it was a private conversation, not a public blog fit for family viewing). He went on to explain that money is the scariest thing for most people, sure to result in heated and angry discussion. It is also complex, something everyone talks about but few understand. Hence, it is a topic that must be carefully addressed, and with plenty of reassurances that one is not propounding anything too unsettling. It is also a subject that accumulates more than its fair share of cranks—indeed, “monetary cranks” actually earned an entry in the New Palgrave dictionary of economics. (By the way, most of the “cranks” discussed in that entry actually were less “cranky” than someone like Milton Friedman or Friedrich von Hayek—but that is a topic for another time.) For that reason, new ways of looking at money will (rightly, sometimes) be suspiciously treated.

The reaction to our post on the nine myths also reminded me of an interview Nobel winner Paul Samuelson gave to Mark Blaug (in his film on Keynes, “John Maynard Keynes: Life/Ideas/Legacy 1995”). There Samuelson said:

“I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked [that] takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that the long-run civilized life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in every year, [then] in every short period of time. If Prime Minister Gladstone came back to life he would say “uh, oh what you have done” and James Buchanan argues in those terms. I have to say that I see merit in that view.”
In other words, the need to balance the budget over some time period determined by the movements of celestial objects, or over the course of a business cycle is a myth, an old-fashioned religion. But that superstition is seen as necessary because if everyone realizes that government is not actually constrained by the necessity of balanced budgets, then it might spend “out of control”, taking too large a percent of the nation’s resources. Samuelson sees merit in that view.

It is difficult not to agree with him. But what if the religious belief in budget balance makes it impossible to spend on the necessary scale to achieve the public purpose? In the same film James Buchanan argues that the budget ought to be balanced except in wartime—and while he does not explicitly endorse Samuelson’s argument that this is nothing but a useful myth, he does imply that there is no financial/economic/solvency reason for balancing the budget. Rather, it is to keep government in check, to ensure it does not grow and absorb too many of the nation’s resources. Ironically, Buchanan’s willingness to deficit-spend in wartime seems to imply that the US ought to almost always run deficits since we are almost always at war with someone. Hence, he seems to advocate nearly permanent budget deficits—no doubt unintentionally. Many might question that position on the argument that if it is OK to run deficits to destroy one’s enemy then it surely makes sense to run deficits to build a strong nation. Indeed, older readers of this blog will remember that our nation got interstate hiways on the argument that this is good for national defense, and that many of us got through college on “national defense student loans”. But that is not really the point I am driving at in this blog.

What I am arguing is that discussion of money and budget deficits has simply reached a state in which it has become impossible to address real world problems. I have always thought that honesty is the best policy—even if the truth is scary—but I am in the education business, not in politics or marketing or religion. But even if we concede Samuelson’s point, that old-time deficit religion is not now useful—even if it might have served a useful purpose in the past.

Yes, government must be constrained. That is what elections and budgeting and accounting and accountability are all about. We need more democracy, more understanding, and more transparency. Politicians need to listen to Main Street—not just Wall Street—before deciding where and how much to spend. They need to be controlled by a budgeting process—whose purpose is not to balance the budget, ensuring tax revenues match spending outgo, but rather to give us some idea of the size of the programs (hence, what percent of our nation’s resources will be devoted to their projects) and, equally important, to hold our leaders and project managers accountable. When managers run over budget, it does not threaten our government’s solvency but it should threaten its credibility. Fraud and over-reach are always a threat where government’s spending is unconstrained. And, yes, too much government spending generates competition over resources, bottle-necks, and even excessive aggregate demand, all of which can generate inflation.
We don’t need myths. We need more democracy, more understanding, and more transparency. We do need to constrain our leaders—but not through dysfunctional superstitions.


  1. It's never easy to convince millions of people that many of things they were told about something and believed to be true are myths or worse lies. This is beyond a class war – this is war over economic policy or thought. This war is between a flawed, but dominant, economic policy that has been taught for decades in economics and propagandized in the press versus economic policy that threatens the status quo and is espoused by those who are not part of "mainstream".What we are advocating is "radical" but accurate. What is the quote of Abba Lerner (i think) regarding proposing public policy?It's on – "you're either with us or against us." LOL, just kidding about the last line.

  2. Is there a single article or document available online that I can refer others to that explains the deficit myth in simplistic terms such that your average college educated American can understand it.Thanks in advance.

  3. Prof. Wray, I attended the teach-in on wed. and have since been discussing these ideas with people I know and I have found the climate to be very receptive. Granted – most people I know don't have large accumulations in savings and so the threat of value erosion through inflation (as a worse case scenario) is not particularly ominous. -Angelo

  4. It's amazing the ignorance that exists in the economic sphereWe have been hostages of erroneous assumptionsleft in bad standing in the occupation of EconomistsPlease read Fundamentalism and realism in Economy

  5. Professor Wray,thank you from this humble blogger, who has spent the last two weeks familiarizing himself with the MMT case as laid out by Bill Mitchell at his blog. What is fascinating about the transition from "money as store of intrinsic value and controller of otherwise wayward children" to "infinite enabler of unknowable and constantly unfolding possibilities" is how deeply it hits us at the core of our beliefs, and how an old guard has to be shaken to dust before MMT can be properly embraced. The theory is beautifully elegant, but like nuclear weapons gives an as yet still very unwise humanity a little too much 'freedom.' There is much cultural learning and growing up to be done, e.g. we need a new relationship and deeper understanding of wealth, in my opinion. Money as economic lubricant rather than 'symbol of success' seems the all important first piece of this transition, but much else needs to change thereafter, or we'll gorge ourselves to death.I have been writing my way to a deeper understanding of the implications of MMT at my blog ( — beginners may find it helpful!), finding myself more and more excited by its thinking. I consider it courageous to have tackled the money question with such skill, insight and of course academic prominence, hence this giant thank you from me for your contribution to economics, Professor Wray (and others). I am again excited by human potential as enabled more or less within the current structures. MMT is but a small step away from where we are know, but will be a giant leap for mankind.Toby

  6. Hi Randy, I'm very glad to see your emphasis on honesty in this piece. Democracy rests in part on it, and whenever we allow myths to guide our policies, we're in trouble as a nation. Thanks also for linking to the first products of the conference.

  7. The "deficit terrorists" like the Peterson gang seem to view government like a person who can only be stopped from getting too fat by having their stomach stapled shut. What you guys are saying is that such an unnatural procedure carries many potential dangers and is wholly unnecessary; that with proper diet, exercise, and self-control, we can create a person (government) that isn't too fat OR too skinny. One healthy enough and with enough willpower to do its job without succumbing to neither obesity or anorexia.

  8. Thanks to all for the nice comments. Nice change from the mostly silly knee-jerk responses over at HuffPost. Heck it makes one a bit more optimistic.Hard to recommend just one piece. Let me put it to the commentators: which single (short) piece did you find to be most convincing? I think that is a start. But I also think/fear that one piece can only be a start. I have found that even most who have read my UMM book still suffer from confusion and misunderstanding and superstition. It is like those experiments when you put on distorting glasses–seeing the world through new eyes. I have actually had students who described coming to MMT exactly that way. It takes a while to readjust. LRWray

  9. TobyI gotta say I LOVE your comment about the different views of money…."store of intrinsic value and controller of otherwise wayward children" to "infinite enabler of unknowable and constantly unfolding possibilities"…..That is the best summation Ive read to describe what is at the heart of the difference between the MMT view and the mainstream view of money.Theres kind of a parallel between the views on money and the views on God…………..hmmmmmmmm. Maybe that false idol thing.

  10. The elite always knows best according to them self. "We" of course know how things work but they shouldn’t know because then they would abuse and misuse the knowledge, "we" is of course above such human defects, the chosen few.The elite at ECB, the most independent central bank – absolutely free of democratic influence and accountability – and the EU bosses that also is absolved of real democratic influence and accountability is on the run away euro train bewildered and at a loss. But they still know best and is astonished when the market attacks their pet project. I thought it was one of the cornerstones in the neoliberal full scale monetary experiment that the market should discipline democratically elected governments and parliaments. Now when the markets do what was expected of them the Euro fanatics don’t like it and say it is an evil attack on their creation.

  11. An even shorter piece than the one I referred to above that I found convincing was:What is Responsible Fiscal Policy?

  12. Hi Mr. Randall WrayI finished your book "Undestanding Modern Money" and have to say I really enjoyed it. I've been teaching myself finance and part of my goal was to simply understand the monetary system. Of course the book is so much more.Thanks!

  13. Should we consider a Corporate Windfall Profits Tax in order to balance the U.S. federal budget? Please share your opinion at http://www.dyslexinomicon.blogspot.comIn 1965, even after Kennedy's historic tax cuts, corporate taxes made up 21.8%(1) of federal revenues, the marginal corporate income tax rate was 70%(2) and unemployment was at 4.5%(3). But as of 2007 corporations slashed their share down to 14.4% of federal revenues while shoving an additional 4% of the burden on individual tax payers. Currently the marginal corporate income tax rate is 35%, and unemployment hovers around 10%. Check it out yourself:(1) Federal burden sharing by , Office of Management and Budget Table 2.2 (2) Marginal federal income tax rates: for marginal tax rates, (3) Unemployment history: , Table B-42 Civilian Unemployment Rates 1962-2009

  14. Thanks for more comments.No Dominick I would not support raising the corp tax. Indeed, I follow my teacher, Hyman Minsky, in advocating elimination of the corp profit tax. Remember, there is no reason to balance the budget over a period determined by the movement of celestial objects. Taxes are used to: a) drive the currency (head tax is best), b) eliminate bad behavior (liquor tax), c) take away excessive income that might drive the economy beyond full employment. Corps do engage in bad behavior, but making profits per se is not one of them. LRWray

  15. Hi Greg, thanks for the compliment, and yes, this is a religious issue. What money is, how we use it, its symbolic power, are long term consequences with roots back into antiquity. MMT upsets this deeply embedded, knee-jerk, visceral relationship we have with money, and by extention with value. It will take an almighty ruction to update this relationship. You don't need Religion to be religiously attached to received wisdoms. You just need to be human. Toby

  16. Corporate income tax is a gnarly problem. Analytically, I can follow the arguments against them. Politically, however, I still feel ambivalent. To the extent the corporations have acquired – and much more much recently – powers and privileges of people, why should they not bear people's burdens? If the investors want to escape "double taxation" and economists want efficiency unperturbed by planning around them, WHAT should corporations give up in return? Wally Williams had a piece the other day tying voting rights to tax shares. Between relieving corporations of taxes to make them less like people, and relieving citizens of the right to vote if they don't make enough to pay taxes, I'd think my suggestion is the much more "conservative."

  17. I have noticed that when presenting these ideas there has been, with some of the resilient opposition, a tendency to forsake basic human decency in the preservation of the purity of the idea of a free market. For instance, when I make the point that automatic stabilizers are going to create deficits regardless of our active policies the dread of spending is turned into a drive for deep austerity. "Then cut the automatic stabilizers". The kinder variety will insist that everything will be o.k. because charities will take the place of parasitic government largess – others would gladly see all forms of aid end so that the market's Darwinian effects can get to work. I know this sounds extreme, but I'm encountering it more frequently than I might have expected. As a tactical measure, would it be wise to include an addendum to the "you're going to pay anyways" argument concerning automatic stabilizers that includes the costs of an increased police force, expanded prison industry and other forms of automatic spending responses that aren't out of the goodness of our hearts?

  18. Let me begin by saying, I deeply admire your work, it has influenced me more than any single other economist. Please don't be disheartened by being banished from mainstream rewards and attacked by the uninformed masses… (Chomsky's analogy of prisoners thinking they are the prison guards comes to mind).The bulk of the resistance to Chartalism is ideological. I've tried to attack it intellectually, along with everyone who reads the huffington post, but since it only is a description of how things actually work, it's really hard to say were it is wrong. Here are my unfinished ideas, perhaps represent my ignorance more than anything. I think there may be too much emphasis on one type of inflation, or inflation always taken in aggregate when a more fine grained picture is important. I'm also left with an unsettled feeling about the accumulation of savings being meaningless if it is taxed or inflated away some day in the future, somehow there should be limits to savings to represent the future's ability to produce. Or maybe money should never be used as a long term savings instrument? Then there is the confidence problem, which Chartalism fixes by showing it's taxes (coercion) not confidence that underpins the currency, but that only exists in the country the currency is issued. There is also the unsolved problem of what happens when agreement and enforcement between the debtor and creditor classes breaks down.But the main issue that you raise is ideological. Can government be trusted with the knowledge that it isn't revenue constrained? Looking at today's congress, I would be scared to death. Thinking historically, the non-political and non-financial elite have had to organize and fight (usually after considerable depth and length of suffering) for every bit of power they deserve. So switching money creation powers from bankers to government will be democratic may have bad outcomes as you outlined in your blog. Not to mention all of Arrow's impossibility theorem applies and we can get some outcomes that makes no one happy. Job guarantee addresses some, but not all of this.There may be a better idea then giving more power to the government.. A medium of exchange that is produced by neither government or banker's decree, yet still accepted as settlement for taxes and convertible to the national currency. Something like insurance policies being traded as Bernard Lietaer suggests in his Ted talk? keep up the good work. I've witnessed your message go from near complete obscurity to reaching tens of thousands in the general public.

  19. Toby,I second Greg's comment about your summation. …."store of intrinsic value and controller of otherwise wayward children" to "infinite enabler of unknowable and constantly unfolding possibilities"…..Greg,Theres kind of a parallel between the views on money and the views on God…………..hmmmmmmmm. Maybe that false idol thing.God is only a letter away from gold. It offers the believer the illusion of a fixed point of reference in an otherwise purely relative coordinate system. MMT deprives us of even this illusion.

  20. I think you have hit the nail on the head. This isssue is: Are we politically mature enough to face the truth, that our economic fate is in our own hands? Are we ready for that level of (self-)mastery? Ready to give ourselves the moral law?Or are we still political children, ready and more than willing to continue to lay our freedom at the feet of our masters?

  21. My nominations, in no particular order, for the best short easy-to-understand articles on deficit mythology and who is pushing it.In Defense of Deficits by John Galbraith Deficit: Nine Myths We Can't Afford of Mass Destructionby Christopher Hayes

  22. Ah…isn't the inflation tax highly regressive, since it's a flat tax (and interest rates are lower at the top income brackets)?How does this increase welfare better then progressive taxation?

  23. My question is this: did Keynes' accept Abba Lerner's functional finance theory?My thoughts are here:

  24. The most remarkable in the Samuelson quote is not the fact about budget deficits/constrains it’s the attitude to science, knowledge and democracy. Frightening when people of great importance in how our society is economically run show this contempt of his fellow citizens ability to act responsible and with common sense. If his fellow citizens got the esoteric knowledge they will act as madmen and spend out of control.

  25. Well-intended policymakers are only as good as their economic advisers. Economists are giving the wrong advice to policymakers because they misunderstand monetary operations. The objective is never to balance the budget. The objective is always to optimize the budget. Fiscal optimization at any level of public spending requires balancing tax revenues with spending while running deficits at a rate corresponding to users saving rate. For those of you interested I’ve outlined a laymen’s explanation here – DollarMonopoly.comGovernment debt of a currency issuer is the currency user’s savings as a matter of double entry accounting. It’s just a digital account corresponding to all currency users’ savings in banknotes, deposits, and treasuries. The Kansas City school are the only ones who understand how the monetary system actually works. This is an operational problem that requires a political solution. Failing to optimize deficits lead to excess capacity, reduced throughput, poor labor utilization, and opportunity costs. The cost of suboptimal deficits is the missed opportunity to spend on R&D that can subsidize next generation technology for the private sector.